European stocks close higher as traders brace for Fed’s next move, await ECB

A broad gauge of European stocks finished modestly higher Wednesday, making some headway after swinging in and out of the red, as investors looked ahead to the U.S. Federal Reserve’s latest monetary policy decision. An update from the European Central Bank set for Thursday also was in focus for investors.

But France’s CAC 40 index
PX1, -0.79%
shed less than 1 point to end at 5,452.73, and Spain’s IBEX 35
IBEX, -0.56%
fell 0.2% to 9,899.10. The U.K.’s FTSE 100
UKX, -0.19%
lost less than 1 point, closing out the session at 7,703.71.

The euro
EURUSD, -0.0175%
traded at $1.1785, slightly up from $1.1745 late Tuesday in New York.

What’s driving markets?

European stocks overall ran into a headwind in the form of data showing industrial production in the eurozone fell by a larger-than-expected 0.9% rate in April. That’s underscored some questions about the strength of the economy at a time when the European Central Bank is discussing when to end its €2.5 trillion ($2.95 trillion) program of bond buying, or quantitative easing.

Investors are expecting to hear more about the timing when the ECB releases its statement Thursday at 12:45 London time, or 7:45 a.m. Eastern Time. ECB President Mario Draghi will hold a press conference at 1:30 London time, in Riga, Latvia.

Investors are in the thick of central bank action for the week. The Fed is expected to issue its monetary policy decision after the close of European trade on Wednesday, and moves by the U.S. central bank are closely watched as they have an impact on interest rates and investment decisions world-wide. The Bank of Japan is scheduled to release its monetary policy update on Friday.

Fed in focus

The Fed, led by Chairman Jerome Powell, should issue its target range for the federal-funds rate at the end of its two-day meeting on Wednesday. Investors are pricing in expectations for a rise of 25 basis points to 1.75% to 2%, from the current range of 1.5% to 1.75%. That would be the second U.S. interest rate hike this year. The decision is due at 7 p.m. London time, or 2 p.m. Eastern Time.

What strategists are saying

”We see the case for the [Fed] to have a neutral- to hawkish- accompanying statement, as the U.S. economy had favorable financial releases recently,” said Peter Iosif, senior research analyst at IronFX.com

“Also, should the Fed’s forecasts alter, based on the recent acceleration of the inflation rate and the favorable employment report, we could see the dot plot implying a four rate hike path in 2018,” Iosif said.

Stock movers

Shares of European payment processor Adyen NV
ADYEN, -7.39%
doubled during their trading debut on the Euronext Amsterdam exchange. The shares, priced at €240 each, opened at €400. The stock hit an intraday high of €503.90 and ended at €455.00.

Just Eat PLC shares
JE., -3.82%
tumbled 4.7% after rival Deliveroo late Tuesday outlined expansion plans, including signing up about 5,000 more U.K. restaurants who’ve opted to use its fleet of food couriers.

Industria de Diseno Textil SA
ITX, -1.79%
or Inditex, swung higher, ending up 3.5%. The Spanish parent company of Zara, an apparel retailer, said same-store sales grew at a slightly slower rate of 5% in the latest quarter, compared with a year earlier. But its profit margin unexpectedly improved.

Economic data

U.K. consumer-price inflation was at 2.4% in May, the Office for National Statistics said, matching a FactSet consensus estimate.The Bank of England takes into account that data when setting monetary policy.

But a recent run of than weaker-than-expected economic figures have raised questions about when the U.K. central bank will resume lifting interest rates. Its last rate hike of 25 basis points to 0.5% was in November, the first increase in a decade.

Brexit bill under debate

Debate continued for a second day in the U.K. House of Commons on the bill that takes the U.K. out of the European Union. A key amendment, put forth by the House of Lords, was defeated Tuesday, considered a win for Prime Minister Theresa May. That amendment would have given Parliament the final say on terms of the U.K.’s exit from the EU if no deal could be reached with European Union negotiators.

Prime Minister Theresa May’s Conservative government still runs the risk of losing its bid to overturn some of the amendments if enough Conservative lawmakers decide to vote alongside opposition parties.

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